Correlation Between Lumentum Holdings and AXT

Can any of the company-specific risk be diversified away by investing in both Lumentum Holdings and AXT at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Lumentum Holdings and AXT into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Lumentum Holdings and AXT Inc, you can compare the effects of market volatilities on Lumentum Holdings and AXT and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Lumentum Holdings with a short position of AXT. Check out your portfolio center. Please also check ongoing floating volatility patterns of Lumentum Holdings and AXT.

Diversification Opportunities for Lumentum Holdings and AXT

-0.63

Correlation Coefficient

Lumentum Holdings  AXT

Excellent diversification

The 3 months correlation between Lumentum and AXT is -0.63. Overlapping area represents the amount of risk that can be diversified away by holding Lumentum Holdings and AXT Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on AXT Inc and Lumentum Holdings is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Lumentum Holdings are associated (or correlated) with AXT. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of AXT Inc has no effect on the direction of Lumentum Holdings i.e., Lumentum Holdings and AXT go up and down completely randomly.

Pair Corralation between Lumentum Holdings and AXT

Given the investment horizon of 90 days Lumentum Holdings is expected to generate 0.54 times more return on investment than AXT. However, Lumentum Holdings is 1.84 times less risky than AXT. It trades about 0.04 of its potential returns per unit of risk. AXT Inc is currently generating about 0.0 per unit of risk. If you would invest  5,651  in Lumentum Holdings on September 30, 2024 and sell it today you would earn a total of  2,785  from holding Lumentum Holdings or generate 49.28% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

Lumentum Holdings  vs.  AXT Inc

Lumentum Holdings

Risk-Adjusted Performance

11 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Lumentum Holdings are ranked lower than 11 (%) of all global equities and portfolios over the last 90 days. In spite of rather unfluctuating basic indicators, Lumentum Holdings exhibited solid returns over the last few months and may actually be approaching a breakup point.

AXT Inc

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days AXT Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong basic indicators, AXT is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Pair Trading with Lumentum Holdings and AXT

The main advantage of trading using opposite Lumentum Holdings and AXT positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Lumentum Holdings position performs unexpectedly, AXT can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in AXT will offset losses from the drop in AXT's long position.

The idea behind Lumentum Holdings and AXT Inc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Comparator module to compare the composition, asset allocations and performance of any two portfolios in your account.